Global Macro and Managed Futures Hedge Fund Strategies: Portfolio Differentiators?

Abstract

The hedge fund industry has continued its rapid growth in recent years with now over $5 trillion in assets under management. In this paper, we update and extend earlier work aimed at demystifying hedge fund strategies with a particular focus on global macro and managed futures strategies. When adjusted for risk to traditional stock/bond markets, we find that although cumulative alpha remains positive for both global macro managers and managed futures managers, both strategies have shown a meaningful decline in risk-adjusted alpha in the 13 years following the global financial crisis (GFC). Our analysis further separates performance that can be attributed to other well-known systematic factors and report that these factors add importantly to understanding the variation in returns over time, with significant contributions from various time-series momentum factors. Finally, we emphasize outcomes for investors during turbulent market periods. Here, we show that global macro managers have exhibited more robust portfolio support during market drawdowns versus managed futures managers which have demonstrated comparatively poor portfolio mitigation historically versus a traditional stock/bond portfolio mix.

Keywords: edge funds, manager performance, asset pricing, factor analysis, performance attribution

JEL Classification: G00, G11, G12, G14, G15, G23